2016 Childcare Survey

Transcription

1 2016 Childcare Survey Jill Rutter Since last year, the number of English local authorities reporting a shortage of free early education places for three and four year olds has more than doubled. More than a third of councils are now struggling to meet demand. These gaps mean that children are missing out from free early education, parents are prevented from working and the Government may find it more difficult to deliver on its pledge of expanding free childcare in Sponsored by

2 2016 Childcare Survey 02 Contents 1. Key findings and areas for action Policy background Methodology Childcare prices Price trends over time Is there enough childcare for families? Free early education Registered childminders: a case of policy neglect The state of childcare in 2016 and its impact on families and wider society Fixing the childcare system Bibliography Acknowledgements Figures and tables 1: Average weekly childcare costs by region and nation, : Summary of sources of help with childcare costs : Price of full-time (50 hours) childcare per week for a child under two, : Childcare costs at a sub-national level, Scotland, : Average price variations between the most and least expensive nurseries in a local authority area, : Disposable income (after housing costs) under Universal Credit, 2016 childcare prices : Changes in childcare costs between 2015 and : Changes in unweighted and weighted nursery costs for a part-time place for a child under two, : Year-on-year change to the weighted cost of a part-time nursery place for a child under two : Changes in nursery prices, : Different input costs in group-based childcare : Percentage of local authorities reporting sufficient childcare for particular family types, 2015 and : Percentage of local authorities reporting sufficient childcare or out-of-school activities for specific age groups, 2015 and : Free early education entitlement for two, three and four-year-olds in : Local authorities reporting insufficient free places 2015 and : Outcomes of Ofsted inspections in year to March 2015, by area deprivation : Childminder numbers per 1,000 children under five, : Items families have cut back on to afford childcare... 47

3 2016 Childcare Survey Key findings and areas for action Childcare provision is a crucial part of a modern state s infrastructure. It enables parents to work, improves children s outcomes and helps narrow the gap between disadvantaged children and their more affluent peers. Given how important childcare is to all of us, the Government is rightly spending both time and effort in making sure it works. Since 2002 the Family and Childcare Trust has undertaken an annual survey, measuring the price and availability of childcare. The data collected from local authority Family Information Services makes it possible to monitor changes in childcare prices and supply from year-to-year. The publication of this year s survey, the 15th in the series, coincides with significant changes in childcare policy and funding. It shows that price rises have slowed compared with last year and are now increasing in line with inflation, although childcare remains a substantial item of family expenditure. However welcome this slow down may be to parents, it is questionable whether the trend will continue, as the National Living Wage, pension auto-enrolment and new funding arrangements may put new financial pressures on childcare providers in the near future. The survey s findings also reveal some serious cracks in our childcare system. High costs remain a barrier to parental employment. Parents often still struggle to find the flexible childcare that enables them to work. We do not have enough childcare for disabled children and those in rural areas. The workforce is poorly paid, yet many childcare providers struggle to make ends meet. With additional pressure on the system, these cracks may well widen. Key findings Childcare costs The price of sending a child under two to nursery part-time (25 hours) is now per week in Britain, or 6,072 per year, which is a 1.1 per cent rise since A registered childminder now costs per week for part-time care for a child under two, compared with last year, a price increase that is similar to the rate of inflation 1. A family with one child under two in part-time childcare and one child aged five at an afterschool club can now expect to pay 7,933 per year for childcare, over 28 per cent of median household income 2. When prices are weighted to take population distribution into account, part-time nursery prices for a child under two fell by 0.3 per cent last year, much in line with the rate of inflation. This is the first time that nursery price rises have tracked inflation since The Consumer Price Index rate of inflation was 0.2 per cent in December 2015, the highest it had been since January ONS data: median equivalised disposable household income for non-retired households in the UK = 28,092 in

4 2016 Childcare Survey 04 Key findings and areas for action The poorest parents get help with their childcare costs through Working Tax Credit, although there is a maximum cap on the money they can get. This year there are 11 local authorities where the average cost of part-time childcare exceeds this cap, leaving the poorest working parents having to pay an average of per week or 4,240 per year out of their own pocket. Childcare supply The Childcare Act 2006 requires local authorities in England and Wales to make sure that there is sufficient childcare for working parents, but this year only 45 per cent of councils in England had enough childcare for parents who work full-time. Just 9 per cent of English local authorities had enough after-school childcare for 5-11 year old children, a gap that has widened significantly since 2011, when 28 per cent of local authorities had enough childcare for this age group. Gaps in childcare in Scotland, Wales, in rural areas and for families with disabled children have not narrowed since last year, with just 15 per cent of English local authorities having enough childcare for disabled children, compared to 21 per cent in Free early education An estimated 41,300 three year olds are missing out on free early education in England. The survey indicated that 59 local authorities do not have enough free early education places for three and four year olds, up from 23 local authorities in There are big differences between areas in the number of childminders per 1,000 children under five, from four childminders per 1,000 children in Hull to 24 per 1,000 children in Bromley. This is important, as childminders often provide flexible childcare and will be needed to make the 2017 extension to free early education work for parents. Areas for action This year s survey shows persistent problems with childcare provision in the UK. It is expensive and fails to deliver for too many working families, particularly those who are on low incomes, for parents who work atypical hours, and for parents of disabled children. There are also too many children missing out on their free early education places. Unless these problems are addressed urgently, they will jeopardise the success of the extension to free early education in 2017, limit the effectiveness of other Government support and prevent families from moving into work and out of poverty. Drawing from the findings of this year s survey, we have six immediate recommendations. We call on the Government to: Make an early education place a legal entitlement for children, bringing it in line with a school place.

5 2016 Childcare Survey 05 Key findings and areas for action Strengthen parents rights by bringing in a fair and transparent admissions code of practice for childcare provision. Integrate all the financial support into one simple, transparent and progressive system for parents, that delivers help to those who need it most. Require every local authority to develop a funded childcare inclusion plan to address gaps in access to care for children with special education needs and disabilities. Help providers expand to fill gaps by offering grants for start-up costs and publish guidance on market management for local authorities. Make sure childminders are able to offer free early education provision by providing small grants to help with compulsory training costs, insurance and equipment. But these measures alone are short-term and will not fix a system that too often does not work for children, for parents, for providers, for employers and the Government. Recent policy initiatives have simply been add-ons to a system that needs radical overhaul to reflect today s modern, working families. Childcare funding needs comprehensive reform and the creation of a simple and efficient system that encourages quality, promotes child development, supports working parents and delivers for employers and the economy. Table 1: Average weekly childcare costs by region and nation, 2016 Region/Nation Nursery 25 hours (under 2) Nursery 25 hours (2 and over) Childminder 25 hours (under 2) Childminder 25 hours (2 and over) After-school club 15 hours Childminder after-school pick up East of England East Midlands London North East North West South East South West West Midlands Yorkshire and Humberside England regional average Scotland average Wales average Britain average of regions and nations

6 2016 Childcare Survey Policy background Working parents with children use many different forms of childcare, with their choices dependent on factors that include family income, employment patterns, parental preferences, childcare availability and the age of their children. The 2013 Childcare and Early Years Survey of Parents, covering England, suggested that 78 per cent of families with children aged 0-14 years used childcare, with 59 per cent of them paying for it (Department for Education, 2014b). During the reference weeks of this survey, some 10 per cent of parents used a day nursery, with 91 per cent of them run by private or voluntary sector (not-for-profit) businesses in England (Department for Education, 2014a). A further 5 per cent of families sent their children to a preschool, or used a sessional crèche, both of which offer part-time provision. Some 10 per cent of families sent their children to nurseries attached to primary schools or nursery schools, public sector provision mostly running during term-time and usually for children over the age of three. Another 5 per cent of families used registered childminders. When children start compulsory education, parents may use out-of-school and holiday clubs. In England, in 2013, some 6 per cent of families with children under 15 used breakfast clubs and 36 per cent used after-school clubs (Department for Education, 2014b). Over half (56 per cent) of after-school childcare is run by private or voluntary sector organisations, although 40 per cent is now run by schools (Department for Education, 2014a). Other families use childminders to pick up their children after school. Children of secondary school age still require some care and supervision, particularly during the school holidays. While the Childcare Act 2006 requires local authorities to provide sufficient childcare for working parents with children up to the age of 14 3, activities for this age group are not usually described as childcare in everyday speech. Moreover, most out-of-school clubs and play schemes do not provide activities that are appropriate for children of secondary-school age. Instead parents of year olds may use arts, sports and leisure activities as de facto forms of childcare. Other families rely on informal unregulated childcare, with over a quarter of families (27 per cent) using grandparents care during term-time (Department for Education, 2014b). Older siblings, other relatives, friends and neighbours may also provide informal childcare. Shiftparenting is another caring strategy, where parents work at different times and share care between them. Both informal childcare and shift-parenting are frequently used where parents have atypical work patterns such as shift-work, as formal childcare may be difficult to find (Rutter and Evans, 2012). There are broadly similar patterns of childcare in use in Scotland and Wales, although there are some small differences that are worth highlighting. In Wales there are fewer private and voluntary sector nurseries per head of population. This is because many more Welsh primary schools have nursery classes attached to them and when children are three they will tend to use this state provision. There is also a vibrant Welsh-medium pre-school sector in Wales 3 to the 1st September next following the date on which he attains the age of 14, unless disabled.

7 2016 Childcare Survey 07 Policy background cylchoedd meithrin which some parents use alongside other forms of childcare. In Scotland, too, there is proportionally more public sector nursery provision than in England. Larger proportions of Scottish parents also turn to grandparents to provide informal childcare than do so in England (Rutter and Evans, 2012). Childcare is essential for families in Britain. It is an investment in the future of children, and also for parents as it enables them to work. But until the late 1990s many parents found it difficult to find affordable childcare and as a consequence mothers often left the labour market when they had children. The ability of many families to escape from poverty was, therefore, constrained. As late as 1990, there were just 59,000 nursery places in England and Wales, compared with 1.7 million places today. Until the first tax reliefs for childcare in 1994, the state s role in childcare was largely confined to a discretionary role for local authorities in providing nursery education. But economic changes and greater gender equality, alongside campaigning by activists, forced a change in policy. Today, all the main political parties recognise parents needs for affordable, flexible and high quality childcare. The Nursery Education and Grant Maintained Schools Act 1996 was the first attempt by the state to increase the supply of childcare. In 1998 the National Childcare Strategy committed government to increasing the availability and affordability of early childhood education and childcare in England and Wales (Department for Education and Employment, 1998). Choice for parents, the best start for children, a further ten-year childcare strategy, was published in 2004 which paved the way for the Childcare Act 2006 (HM Treasury, 2004). While the 1998 strategy brought in many changes, the 2004 strategy was a more significant document in changing the direction of policy. Its recommendations covered four areas (i) work-life balance (ii) increasing the supply of childcare (iii) improving quality and (iv) making childcare more affordable for families. To date, it is the most comprehensive childcare strategy in its reach and ambition. The narrative the strategy described placing childcare squarely in the context of both child development and parental employment continues to define policy to the present day. The 2004 strategy paved the way for the Childcare Act This requires local authorities in England and Wales to secure sufficient childcare as far as is reasonably practicable for working parents and those undertaking training with the intention of returning to work. Councils are also obliged to have regard for disabled children and make sure there are enough free early education places. While day nursery places increased by 46 per cent between 2006 and 2013 in England, childminder numbers and places in pre-schools and sessional creches have declined since the 2006 legislation. (The big increase in childcare places largely occurred before 2006 in all parts of the UK). Despite the legal obligations of the Childcare Act 2006, there are still large gaps in some forms of childcare, which is examined in Section Six of this report.

8 2016 Childcare Survey 08 Policy background Help with childcare costs Childcare affordability is another policy aim. Successive governments have opted to subsidise parents childcare costs through both supply-side subsidies to providers and demand-side subsidies to parents, for example, through tax credits (Table Two). This approach contrasts with that taken by many other developed countries where all or the majority of public subsidies go to providers as supply-side funding who, in turn, deliver free or low cost childcare to families. Supply-side funding is generally more cost-effective than directing funding to parents and tends be less inflationary (Ben- Galim, 2014; Stewart et al, 2013). Provider funding can also be made conditional on meeting quality criteria, thus leading to improvements in provision that boost children s development. Table 2: Summary of sources of help with childcare costs Level of support Recipient group Date available Where available Childcare element of Working Tax Credit 70% of childcare costs up to a maximum of 175 per week for 1 child or 300 per week for 2 or more children. Families receiving housing or council tax benefit get extra help, amounting to about 96% of costs in England Nearly 400,000 low income working families Present UK-wide Universal Credit 85% of childcare costs, with same maximum levels as Working Tax Credit, although no extra help for those receiving housing benefit Low income working parents From April 2016 UK-wide Childcare vouchers Worth up to 55 per week for basic rate tax-payers Working parents, but not self-employed and usually excludes those receiving tax credits Presently available, but will not accept new applicants after 2017 UK-wide Tax Free Childcare 20% of childcare costs up to a maximum of 2,000 per year. Families of disabled children receive help up to a maximum of 4,000 per year Working parents not in receipt of tax credits/ Universal Credit whose gross household income is higher than a specified minimum threshold but less than 100,000 per parent From early 2017 UK-wide Care to Learn 175 in London and 160 per week outside Parents under 20 at school or in further education Presently available Care to Lean applies to England, but equivalent schemes elsewhere in UK

9 2016 Childcare Survey 09 Policy background Further education Discretionary Learner Fund Discretionary Parents over 20 in further education Presently available This fund applies to England, but equivalents elsewhere in UK Higher Education Childcare Grant a week for 1 child up to a week for 2 or more children Parents in full-time higher education who are eligible for student finance Presently available This fund applies to England, but equivalents elsewhere in UK Free early education 570 hours per year, usually 15 hours per week in term time All 3 and 4 year olds and the 40% most income deprived 2 year olds Presently available England, but 3 and 4 year olds elsewhere in the UK also receive free early education Free early education extension 1,140 hours per year = 30 hours per week during term-time 3 and 4 year old children of working parents falling within same income thresholds as Tax Free Childcare After September 2017 England, but a similar commitment in Scotland In the UK parents receive help with their childcare costs through free early education. All three and four year old children receive some part-time free early education, usually provided by nurseries, with specific groups of disadvantaged two year olds also getting this provision in England, Scotland and Wales (Table 14). From September 2017, about half of three and four year olds in England will see their hours of free early education doubled, to cover 1,140 hours every year, the equivalent of 30 hours per week during term-time. At the time of writing, the Childcare Bill 2016 was in Parliament, with the expectation that it will be given Royal Assent by Easter This provides the legal under-pinning for the increased hours. Other preparations for the extension to free early education in 2017 include a funding review for free early education and local pilots of the expanded provision starting in September There are also commitments to increase free early education to 30 hours per week in Scotland and Wales. These expansions have been welcomed by parents, although there will be some challenges in delivering this additional provision, which we discuss later in this report. Tax credits and Universal Credit The current infrastructure of support also includes help with childcare costs through the childcare element of Working Tax Credit and employer-supported childcare vouchers. As Table Two shows, there are also some smaller schemes to help parents with their childcare costs, for example, for parents who are students. In April 2014 an estimated 7 per cent of UK families with dependent children under ,000 families in total received help with their childcare costs through the childcare element of Working Tax Credit (HM Revenue and Customs, 2015). As Table Two shows there is a cap on the amount of help that parents can receive, set at 175 per week for one child (meaning the parent gets 70 cent of this = ) and for two or more children. These levels were set in 2005 and have not been uprated since then, despite large increases in childcare costs over 4 Parents will get 70 per cent of this = 210.

10 2016 Childcare Survey 10 Policy background this period. Moreover, it is only those on the lowest incomes who receive this, as the childcare payment starts to taper off steeply if the first earner in a household earns more than 15,910 per year before tax and National Insurance are deducted. Although tax credit awards are affected by family circumstances, there were only 6,000 families with an annual income of over 30,000 who received any Working Tax Credits in the financial year (HM Revenue and Customs, 2015). Tax credits are now being merged into the single Universal Credit, with 2018 now being the target date for its full implementation. Within Universal Credit the overall maximum support levels will remain, although these will be now calculated monthly. Universal Credit will eventually be administered online and these two changes will enable greater flexibility for parents whose childcare costs fluctuate from week-to-week, for example, because of irregular work patterns or school holidays. Parents who work less than 16 hours per week will qualify for help with childcare costs through Universal Credit, a move that eliminates some of the benefit cliff edges that can disincentivise moving back into work. However, payments will be made a month in arrears, making the up-front costs of returning to work difficult to pay. Up to 100,000 families in receipt of housing or council tax benefit will see a reduction of an average of 1,196 per year in their help with childcare costs when they are moved into Universal Credit. The majority of them are living in southern England and presently receive 96 per cent of their childcare costs through the tax credit system (Children s Society, 2012). This additional source of help will end under Universal Credit. In March 2013 the Government announced that it intends to increase the level of childcare support through Universal Credit to 85 per cent of costs, up from 70 per cent of costs that parents receive today. This increase will be implemented in April 2016, when it was hoped that many more families would have been switched from tax credit support to Universal Credit. The delays to Universal Credit roll out mean that many families still getting Working Tax Credit support will continue to receive a lower rate of help for many months from now. Vouchers and Tax Free Childcare At present, parents not in receipt of tax credits are entitled to help with their childcare costs through employer-supported vouchers and tax relief on workplace nursery costs. An estimated 540,000 UK parents receive help with their childcare costs through employer-supported childcare schemes, most usually as vouchers, either as an additional benefit on top of their salary or as a salary sacrifice before they pay tax (House of Commons Library, 2014). Those receiving childcare vouchers can save up to 55 per week if they are basic rate taxpayers or higher rate taxpayers who joined a voucher scheme before 5 April Childcare vouchers can also be banked and used at a time when childcare costs may be particularly high, for example, during the school holidays. The disadvantages of childcare vouchers are that only five per cent of employers offer them and not all childcare providers, particularly out-of-school clubs, accept them.

11 2016 Childcare Survey 11 Policy background In 2013 the Government announced that it will phase out the present employer-supported childcare voucher scheme and replace it with the Tax Free Childcare scheme. This will be an online system where parents bank their payments. For each 8 a parent pays in, the Government will add an additional 2 up to a maximum of 2,000 per year per child. Families of disabled children receive help with their childcare costs to a maximum of 4,000 per year. Eventually, Tax Free Childcare will cover all families with children under 12, if they meet the required work and income criteria. There will be an upper income limit per parent of 100,000 to qualify, and a minimum weekly income level per parent equivalent to 16 hours (worked at the National Living Wage) (HM Treasury, 2015). The Tax Free Childcare scheme is now due for implementation in This new help with childcare costs is welcome, although there are concerns about these changes. Essentially, by about 2018 there will be two demand-side childcare support systems in operation: Universal Credit and Tax Free Childcare. The qualification criteria relating to children s age and family size differ between the two systems, potentially creating confusion (Rutter et al, 2014). Some families who get help through Universal Credit may well be financially better off if they opt into Tax Free Childcare. Additionally, there is a large cliff edge between the two systems, where moving from Universal Credit support to Tax Free Childcare can mean annual losses of thousands of pounds. Such sudden drops in income can disincentivise moves to increase a family income, by working more hours or seeking promotion. This issue is examined in the next section of this report. The future direction of childcare subsidies Successive governments have gradually increased their spending on childcare. By 2017, UK spending on it will have reached nearly 7.5 billion, made up of: Support for free early education - approximately 2.99 billion for existing levels of provision, plus 990 million from 2017 for the 30 hour extension and an increase in the average rate allocated to local authorities for free childcare. The childcare element of Working Tax Credit and Universal Credit billion in the UK (approximately 1.3 billion in England) Tax-free childcare million in the UK (approximately 700 million in England) Legacy support for childcare vouchers and tax relief on workplace nurseries million in the UK (approximately 705 million in England) About 44 per cent of public subsidies for childcare will be demand-side funding by 2017 and 56 per cent are supply-side subsidies to providers. Compared with many other developed countries, the public funding of childcare is complicated in the UK, as Table Two illustrates. While there will be greater investment in supply-side provider funding after 2017 and the extension of free early education, the same underlying system remains. This is a system that has seen piecemeal additions and is complex and expensive to administer. It is also complicated for

12 2016 Childcare Survey 12 Policy background parents and the cliff edges between the different parent subsidies can discourage them from taking on extra work or seeking promotion. A new Government has an opportunity for a root and branch review of childcare funding and to set in place changes that ensure simplicity, progressive levels of support that target those most in need, high quality and accessibility in all parts of the UK. We hope that the findings of the 2016 Childcare Costs Survey will highlight the need for radical reform, and remind policy makers and politicians of the importance of childcare, for children, for families and for the broader economy.

13 2016 Childcare Survey Methodology In November 2015 a survey was sent to all local authority Family Information Services in England and Wales and Children s Information Services, their equivalent in Scotland. This requested details about the prices charged to parents for different types of childcare and its availability in Britain. The same information has been collected since 2002, enabling time series analysis to take place. It is not possible to include Northern Ireland in our survey as neither its government nor its education boards have data about childcare prices and supply and demand for this service. The Childcare Act 2006 and its accompanying statutory guidance obliges local authorities in England and Wales to keep up-to-date data about the price of childcare and whether there is enough to meet local demand its sufficiency. Local authorities were asked to provide prices for 25 hours and 50 hours of childcare, provided by nurseries or childminders. The majority of day nurseries and many childminders offer care between 8am and 6pm which is 50 hours per week. This 25-hour figure is part-time childcare and represents the typical amount of childcare that families with children under five use in the UK (Department for Education, 2014b). The prices exclude factors such as sibling discounts or additional charges for items such as meals. We also asked for the average price for 15 hours childcare in an after-school club and the prices charged by childminders who pick up children from school. We have not included nannies in our survey, as fewer than 1 per cent of families use them (Department for Education, 2014b; Welsh Assembly Government, 2009). In order to ensure that our calculations of childcare prices were reliable, we needed an adequate response rate in all the regions and nations of Britain. Freedom of Information Act requests were used to collect the information where the online survey had failed. Altogether, we received responses from 197 of 206 local authorities, giving an overall response rate of 96 per cent and a minimum response rate of 90 per cent in all regions and nations of the UK. (Excluding the sparsely populated highlands and islands of Britain, the local authorities that did not respond were Lewisham, Telford and Wrekin, Falkirk and North Lanarkshire). The data was used to calculate average prices for day nurseries, childminders and after-school clubs in each region or nation of Britain. However, these averages do not take into account the varied population size of each local authority, and the different population sizes of Britain s regions and nations. We also calculated childcare prices, weighted to take into account the size of the 0-4 and 5-11 population in each area. The weighted price is a more accurate reflection of what the average parent is paying. We also checked a sample of 22 survey returns two in each part of Britain manually, by checking prices with providers in those areas. This enabled us to make sure that local authority data was reliable.

14 2016 Childcare Survey 14 Methodology It is important to emphasise that this survey does not ask childcare providers to estimate how much it costs to deliver childcare. This is likely to be a different amount than the price that parents are charged, because of the complex systems of cross-subsidy and the array of business models use by childcare providers. The survey also represents average prices to parents and there will be parents who have higher or lower costs than implied in the survey. Alongside costs, the survey also examines childcare supply and looks at whether local authorities have sufficient childcare for different groups of children. In England, Scotland and Wales, local authorities are required to assess childcare supply and map it against local demand. (The legal requirements that underpin this duty are discussed in Section Six of this report). The survey asked local authorities to draw on their most recent childcare sufficiency data and report if they had enough childcare for children aged two or under, three and four year olds, children who qualify for free early education, 5-11 year olds, year olds, disabled children, children who live in rural areas, parents who work full-time and parents who have atypical work patterns such as shift workers. This year we also asked an additional question on registered childminders, as national data indicates a downward trend in their numbers over the last 10 years. As childminders will be needed to deliver some of the additional hours of free early education in 2017, we felt it was important to understand trends in childminder numbers.

15 2016 Childcare Survey Childcare prices Under-fives childcare The price of sending a child under two to nursery part-time (25 hours) is now per week in Britain, or 6,072 per year (Table One). This represents a 1.1 per cent rise since 2015, without taking population into account. A registered childminder now costs per week for parttime care for a child under two, compared with last year, a price increase that is similar to the rate of inflation 5. At 2016 prices, childminder care now costs 5,422 per year, excluding extras such as meals. As children get older, nursery care becomes a little less expensive, with average prices for children aged two or over some 4.2 per cent lower than for the under twos. However, parents see less of a price reduction with childminders, as they tend to have hourly, half-day or weekly rates, rather than set their prices by age. There will be some parents who pay for more than 25 hours childcare per week, particularly where both parents work full-time, have long commuter journeys or where their children are too young to qualify for free early education. Table Three shows full-time childcare costs for a child under two - 50 hours per week - in a nursery and for a childminder. Table 3: Price of full-time (50 hours) childcare per week for a child under two, 2016 Nursery 50 hours East of England East Midlands London North East North West South East South West West Midlands Yorkshire and Humberside England regional average Scotland Wales Britain average of regions and nations Childminder 50 hours The majority of daycare is delivered by private and not-for-profit sector nurseries in Britain, with 91 per cent of providers in England coming from the private or not-for-profit sectors (Department for Education, 2014a). In many local authorities, however, there are some places in public sector nurseries, for example, those based in children s centre nurseries or primary schools. Until very recently, public sector daycare has been less expensive than that offered by the private and not-for-profit sector: in 2011, part-time public sector provision for a child under 5 The Consumer Price Index rate of inflation was 0.2 per cent in December 2015, the highest it had been since January 2015.

16 2016 Childcare Survey 16 Childcare prices two cost per week, while private and not for profit provision cost (Daycare Trust, 2011). These price differences are a consequence of (i) policies to offer subsidised childcare to disadvantaged families and (ii) lower non-staff operating costs in public sector provision. Although staff wages are higher in the public sector and staff better qualified - school nurseries do not have rental or mortgage costs, and management costs can be shared with the school. Moreover, public sector nurseries do not aim to make a profit or operating surplus. This year, public sector provision is still less expensive than that offered in the private and not-forprofit sectors. For a child under two, public sector provision costs per week, while that in the private and not-for-profit sector costs However, there are three regions where public sector provision is now more expensive than in the private and not-for-profit sector for both the under twos and those aged between two and five (Eastern England, the East Midlands and the South West of England). In 23 local authorities in England, four in Wales and two in Scotland, public sector daycare is more expensive than that run by the private and not-for-profit sector. This may be a consequence of spending cuts which have forced a reduction in subsidised places, or forced public sector nurseries to charge full costs, rather than operating hidden cross-subsidies. Regional and local price variations for under-fives childcare Table One shows that there are substantial regional price differences in England and Table Four sets out regional price variations in Scotland. London remains the most expensive part of Britain for childcare, with part-time nursery prices for a child under two now 35.9 per cent more expensive than the national average. This means that the average London parent paying for part-time childcare for a child under two would pay 2,182 more per year than the average parent in Britain. Table 4: Childcare costs at a sub-national level, Scotland, Eurostat Region Nursery 25 hours (under 2) Nursery 25 hours (2 and over) Childminder 25 hours (under 2) Childminder 25 hours (2 and over) After-school club 15 hours Childminder after-school pick up Eastern Scotland Highlands and Islands and NE Scotland South Western Scotland Overall Scotland average Britain average of regions and nations The cost of delivering childcare is higher in London, as rent, rates and staff costs are usually higher (Laing and Buisson, 2014). But there is evidence that London prices are pulling away from the rest of Britain, as five years ago part-time nursery care for a child under two was

17 2016 Childcare Survey 17 Childcare prices 22.9 per cent more expensive than the average for Britain, compared with 35.9 per cent today (Daycare Trust, 2011). Part-time childminder provision for a child under two in London is now 42.1 per cent more expensive than the British average, compared with 32.2 per cent in Some campaigners have argued that tax credits and the new Universal Credit should have a London weighting to reflect higher childcare costs. There is some precedence for regionallyweighted childcare support. The Care to Learn scheme, for example, which offers funding for young parents for childcare, offers up to 175 per week in London compared with up to 160 a week in the rest of the country. The Family and Childcare Trust is sympathetic to arguments for a London weighting, but there are legitimate concerns about how such a scheme would be administered, and boundary and fairness issues for families elsewhere in the country who also face high childcare costs. Local price variations As well as price variations between regions, there are also substantial childcare price variations within regions and within individual local authorities themselves. In London, for example, nurseries and childminders are more expensive in inner London than in most suburbs. Childcare also tends to be more expensive in west London than in the less prosperous eastern local authorities. A parent in the most expensive London local authority would pay 9,117 more per year for a parttime nursery place for a child under two, compared with a parent in the cheapest area. In most of Britain s big cities, childcare for the under-fives tends to be more expensive than in the surrounding areas. Even in the North East of England, which is a more economically homogenous region than London, childcare costs for a part-time nursery place for a child under two is 3,871 per year in the most expensive local authority compared with the cheapest. There are significant price differences within local authorities. We asked each local authority the price of the most expensive and cheapest nursery for part-time childcare for a child under two. Table Five shows that the average price variation between the most expensive and least expensive nursery in England was per week with smaller differences in Wales and Scotland. Table 5: Average price variations between the most and least expensive nurseries in a local authority area, 2016 England Scotland Wales Average local authority price variation between most and least expensive nursery for 25 hours childcare for a child under 2 per week There are a number of reasons why there may be large price variations within local authorities. Some childcare providers have higher unit costs to deliver childcare and some offer a wider range of activities to children. A nursery that offers music and foreign language lessons will

18 2016 Childcare Survey 18 Childcare prices usually be more expensive than one that does not; in recent years there has been increased segmentation in the nursery market, with the emergence of a small number of expensive luxury nurseries charging more for additional services, as well as nurseries that offer basic no frills services (Laing and Buisson, 2014). As we have already discussed, public sector provision is sometimes less expensive and this factor can account for price variations. Differences in pay and other operating costs can also cause price variations. Differences in the local funding rates to deliver free early education can also cause price variations, an issue discussed in Section Five. Where providers make losses on free early education, they tend to recoup their costs by charging parents more for the additional hours of care that they purchase, on top of their free hours. Early years providers also operate a varied range of other cross-subsidies which can cause price variations. The parents of three and four years olds may cross-subsidise childcare for babies, where higher staffing requirements can make childcare too expensive for local families. Where there are shortages of childcare, providers are generally able to charge more for this service. Childcare operates on a regulated free-market principle. Increased demand is meant to increase supply and help keep prices competitive and affordable. If prices increase, the implication is that supply is lower than demand, which our survey shows is the case in some parts of Britain (see Section Seven). These price variations in under-fives childcare are important and matter to families, because they mean that parents in neighbouring areas have large differences in their childcare costs that cannot be offset by differences in wages. Price variations also matter to the Government which subsidises the childcare costs of families through Working Tax Credit, childcare vouchers, and in future, through the Tax Free Childcare scheme. This means the Government is subsidising childcare costs that are caused by poor policy-making: shortages of provision and poorly-executed funding mechanisms for free early education. This is money that could be saved and re-invested in improving the quality and availability of childcare. It also shows the childcare system is not working and is an argument for childcare reform and a greater channelling of state subsidies directly to providers. Over-fives childcare In Britain about a third of parents use after-school childcare. Table One shows that the average cost of an after-school club providing 15 hours of care is now per week in Britain, or 1,861 per year. This represent a 1.6 per cent price increase compared with last year. Some families with children aged between 5 and 11 use childminders to pick children up from school. This is often a favoured arrangement if parents work after six o clock; childminders are usually more flexible than after-school clubs and can often provide extra hours of childcare. Table One shows the average costs in Britain for school pick-up and 15 hours of after-school childcare from a childminder is now per week, compared with in 2015 (Family and Childcare Trust, 2015a).

19 2016 Childcare Survey 19 Childcare prices As with under-fives childcare, prices are highest in London and the South East of England. In London for example, after-school clubs are 11.1 per cent more expensive than the average price for Britain and childminder prices some 38.8 per cent more expensive (Table One). Although the impact of these higher childcare prices is less severe than for under-fives childcare, the average London family using a childminder for after-school care will pay 936 more every year than the average British family. Help with childcare costs through tax credits and Tax Free Childcare As shown in Table Two, parents now receive help with their childcare costs through Working Tax Credit or childcare vouchers. Targeted at those on the lowest incomes, the childcare element of Working Tax Credit is set at a maximum of 175 per week for one child, meaning the parent gets 70 per cent of this = But this year there are now 11 local authorities where the average cost of part-time childcare for a child under two exceeds this cap, leaving the poorest working parents having to pay an average of per week or 4,240 per year out of their own pocket. Nine of these local authorities are in London and two are located in the South East of England. While childcare may become a little less expensive when children reach two, there are still eight local authorities where the average price of a part-time nursery places exceeds 175 per week for a child over two. The present rates of support through the childcare element of Working Tax Credit were set in Since then, the price of a part-time nursery place for a child under two has increased by 67.1 per cent and a part-time childminder place by 65.2 per cent. While help with childcare costs is being increased to cover 85 per cent of costs under Universal Credit in April 2016, delays to its roll out will mean that many families will not receive this extra help in the near future. Even when the extra help is made available, the poorest parents in the 11 local authorities above the 175 cap will be paying an average of per week or 2,269 per year out of their own pocket for part-time nursery care. The Family and Childcare Trust believes that the Government must review the support that it offers, including looking at the overall 175/ 300 support caps. Two further problems with tax credit and Universal Credit support are upfront costs and second earner disincentives. Under Universal Credit, help with childcare costs will be paid one month in arrears. But most nurseries and many childminders require parents to pay for childcare one month in advance, as well as pay a deposit. Based on this year s prices, a parent who is returning to work and now using part-time childcare for a child under two would have to pay 470 upfront, plus any deposit, one month before wages and Universal Credit help is received. (Those who qualify for support under Universal Credit are least likely to have savings). While there is a budget advance facility within Universal Credit, restrictions on this loan mean that most parents will not qualify for it (Citizens Advice Bureaux, 2014).

20 2016 Childcare Survey 20 Childcare prices As Figure Six shows, Universal Credit also discourages a second earner from taking on more hours of work. The analysis is based on a family of two parents earning the National Minimum Wage and paying for 25 hours of childcare for a child aged one and 10 hours for a child aged three, using this year s average prices. When the second earner works more than 25 hours per week, the family s disposable income only increases very marginally and above 34 hours it starts to decline. This means that taking on extra work simply does not pay. Figure 6: Disposable income (after housing costs) under Universal Credit, 2016 childcare prices 1, , , , Monthly income 1, , , , , Disposable income (AHC) Disposable income, no childcare (AHC) 1, , Second earner hours worked per week Tax Free Childcare At present, most parents not in receipt of tax credits are entitled to help with their childcare costs through childcare vouchers. From 2017, vouchers will be phased out and replaced with the Tax Free Childcare scheme. This online system enables parents to pay providers, but with the Government topping up their payments. For each 8 a parent pays in, the Government will add an additional 2, up to a maximum of 500 per quarter year per child 6. Effectively this means that any family paying more than per week per child will not receive any extra help with their childcare costs as prices increase. But a year before the roll out of Tax Free Childcare there are already 24 local authorities (22 in England and two in Wales) where the price of a part-time nursery place for a child under two exceeds this cap. In these areas, any increase in the price of childcare will erode the value of extra help through Tax Free Childcare. 6 Families of disabled children receive help to a maximum of 4,000 per year.